Brexit Slowing UK Restaurant Growth?

Britain’s Brexit vote (withdrawing it from the European Union) has been followed by a decline in entrepreneurial activity in the UK restaurant market over the past six months coupled with a slower rate of expansion for established restaurant brands, according to researcher Horizons.

Horizons’ biannual “Ones to Watch” research tracks the growth of new brands once they reach five units and until they mature with 25 units. Brands that show aggregate unit growth of at least 20% over the previous three years qualify for inclusion.

For the latest survey, just seven new brands were added to the “Watch” list, a lower number than has been seen in the five years Horizons has conducted the research. In the April survey, for example, 12 new brands merited inclusion.

The slowdown also is evident that just brand previously included among the “Ones to Watch” outgrew the list by growing beyond 25 units. In April, eight concepts had grown beyond 25 locations.

It’s not surprising that dessert shop Kaspa’s is among the fastest growing.

“This slowing of entrepreneurial activity may be the beginning of a more general slowdown in the foodservice sector, even a short recession across the economy with Brexit being the key reason behind the uncertainty,” said Horizons analyst Nicola Knight. “It shows that fledgling operators are currently being more cautious in their expansion plans.”

Among the fastest growing concept on the “Ones to Watch” list was dessert cafe Kaspa’s, which grew from two units in 2013 to 25. Other fast growers include coffee-shop chains Bobs and Berts, Grind and Co. and Red Kiosk. However coffee shops’ share of the “Ones to Watch” list declined to 9.8% from 11% last year. Growing from 0 to 18 units has been the Burger Shack chain.

A U.S. chain that is rethinking its growth strategy is Red Robin Gourmet Burgers and Brews. The chain’s Q3 results, reported yesterday, were disappointing again. Same-store sales were down 3.6%, the result of a 2.4% drop in guest traffic and a 1.2% decline in average check.

As a result, Red Robin is reining in new-store development plans. Rather than opening 30 stores a year over the next two years, it will open no more than 16 in 2017 and even fewer in 2018. This follows the shuttering of nine fast-casual Red Robin Burger Works stores, including those in Chicago and Washington, D.C., which the company called “high-cost urban sites that were losing money.”

Instead of growth, Red Robin will focus on catching up to the rest of the industry on off-premise sales, including carryout, delivery and catering. CEO Denny Marie Post called off-premise its No. 1 priority. The chain has upped to 36 the number of markets piloting an online delivery platform and is testing new food packaging for off-premise dining.Inside the restaurant, Red Robin has completed the rollout of a Kitchen Display System that it says will help improve speed of service (11 minutes order to serve is the goal). It has expanded its entry-price ($6.99) Red’s Tavern Double burger line, although this “every day value” emphasis resulted in the lower check average for Q3 and a decline in store-level margins to 18.6%, compared with 21.6% a year ago. But Post said the high-end Finest burger line has been accounting for upwards of 9% of sales, its highest share ever, balancing the low end.

Finally, the new “Let’s Burger” TV advertising campaign that I previewed for you two weeks ago breaks next week.